Guest blogger, Robin Zhang of ETI member, Matrix APA, has been researching worker retention rates in China – particularly the difficulty in attracting a younger demographic of worker. In this long read, he analyses the challenges facing local manufacturers and shares his thoughts about some of the actions Chinese suppliers can take to tackle what is a growing problem.
China's factories are facing a growing labour shortage and Matrix’s research has shown that it is getting more and more difficult for manufacturers to recruit workers, particularly younger workers.
This is because:
- The working-age population is decreasing. According to data released by China’s National Bureau of Statistics, China’s working-age population in 2016 was 90,747 million, or 65.6% of the total population. But this was a decrease of 3.49 million from the previous year. In fact it was the fifth consecutive year that China's working-age population has shrunk.
- Millennials and post-millennials born under the one-child policy of the 1990s and early 2000s have a higher level of education and parents who are still of working age. They don’t need to support their families and face less financial pressures than previous generations. By contrast, workers in the 1970s and 80s rarely had parents who could support them and consequently had to contribute far more and at an earlier age to family income.
- The Chinese economy is increasingly service and technology sector orientated while the government has encouraged the formation of self-employed businesses. At the same time, young people see blue-collar factory work (which is still too often characterised by poor working conditions and long working hours) as hard work and prefer service sector jobs. Additionally, they are looking for fixed working hours and a good working environment.
- Developments in technology, including smart phones and the internet, have made it much easier for younger generations to search and apply for a new job.
China also has an ageing population. The number of people aged 60 and above in 2016 was almost 230 million (16.7% of the population), which was an increase of 0.6% over the previous year. Within this, the number of people aged 65 and over was just over 15 million. This too was an increase over the previous year (of 0.3%). With progressively more workers retiring, the working age population will contract even further, making it vital for factories to retain existing workers.
Matrix is a multi-category product design and procurement specialist with a focus on ethically sourced products and building long term co-operative partnerships with its suppliers. Central to its business model is a belief in the shared benefits for workers, suppliers and customers that can be gained from driving positive change in working conditions.
Why worker retention is so important to factories
On average, a 1,000-worker factory in China’s popular information and communications technology (ICT) sector replaces 70 workers per month, but in other sectors such as garments and toys, that figure is much higher.
Globally, while an acceptable employee turnover rate is reckoned to be around 10% per year, taking into account China’s demographic trends, forward-thinking factory managers and owners know they cannot afford to be complacent over such percentages. Not only that, high worker turnover results in lower efficiency, a high rework rate (the actual or standard cost of correcting defective work) as well as lower morale and higher costs.
Furthermore, the direct costs associated with turnover such as separation processing, recruitment costs, selection time and orientation of new hires are also significant. And neither should factories forget the many indirect costs, which are often unmeasured or not taken into account. These include lower productivity, the cost of lost knowledge, lost skills and expertise and the uncompensated workload increase of other workers due to vacancies.
As the following table adapted from Corporate Social Responsibility in China’s Information and Communications Technology (ICT) Sector, July 12, 2007, by Business for Social Responsibility indicates, the cost of losing employees is high, even in a popular sector such as ICT. It clearly shows why retaining workers is vitally important to Chinese manufacturers.
Staff time for paperwork
Overtime (other staff less saved worker wages)
Cost of staff to attract applicants and interview
Trainer and trainee salaries (orientation and on-the-job)
100% lost productivity during orientation and training and increased errors in fist month
TOTAL TURNOVER AND REPLACEMENT COST/EMPLOYEE
Total cost per month – 70 employees a month
Savings from 50% reduction in new hires
How Matrix is helping our suppliers to cope with high worker turnover
While there are many reasons why workplaces face staff retention challenges, Matrix recently surveyed our suppliers, and realised there were certain times of the year when factories suffer a much higher turnover rate depending on the type of work and sector, and for different reasons. These were: off season, peak season, during school summer holidays and immediately following the Chinese New Year.
Here are some suggestions that we have explored with our suppliers to help them cope with seasonal peaks and troughs:
Main reasons for leaving work
Workers are not busy during off season and receive lower wages, whether they are paid through piece rate or hourly rates.
More orders, long working hours, and high pressure
School summer holidays
Increased stress – workers who are parents worry about childcare during the long summer holidays.
Up to one month after the Chinese New Year (CNY)
And here’s another observation. Our research also indicates that those solutions which appear easiest to implement, such as cash incentives, may well not be the most effective solution in attracting millennials. They have much greater expectations around their careers. Overall awareness of “worker voice” has increased and younger workers in particular want to feel respected, safe and developed. But many factories have not changed their culture accordingly. They need to do so.
Final thoughts on the importance of analysis
Of course, it’s important to realise that solutions which are reached in isolation cannot solve the underlying problem of high worker turnover, particularly among younger workers. Ultimately, each factory should analyse the root causes of high worker turnover in their particular workplace, and then find the most suitable and specific solutions for them.
Matrix suppliers in China have taken part in ETI management and workers’ rights training. For more information about such training, or to join ETI’s China Working Group, contact ETI’s China Capacity Building Advisor Grace Gao at email@example.com.